Understanding Home Financing.

Pre-qualification and pre-approval

A pre-qualification is usually an early estimate based on information you share with a lender. A pre-approval generally goes further: the lender reviews documentation such as income, assets, and credit before indicating how much it may lend. Neither is a final loan approval, but a pre-approval carries more weight with sellers.

Common loan types

• Conventional loans are not insured or guaranteed by the federal government. Requirements vary by lender and loan program.
• FHA loans are insured by the Federal Housing Administration, part of HUD, and are made by FHA-approved lenders.
• VA-backed home loans are made by private lenders and backed by the U.S. Department of Veterans Affairs, for eligible veterans, service members, and survivors.

Other loan programs exist, each with its own eligibility rules. A licensed loan officer can explain which options fit your situation.

• HUD: FHA-insured loans (opens in a new tab)

  HUD’s information on mortgages insured by the Federal Housing Administration.

• U.S. Department of Veterans Affairs: VA home loans (opens in a new tab)

  Eligibility and how-to information for VA home loans for veterans, service members, and survivors.

Costs beyond the down payment

• Closing costs, such as lender charges, appraisal, title insurance, escrow services, and recording fees.
• Mortgage insurance, when your loan program requires it.
• Property taxes and homeowners insurance, which are often collected with your monthly payment and held in an escrow account.
• Homeowners association dues, if the property has them.

Two documents to know

Federal rules give you two standard forms. Lenders must provide a Loan Estimate within three business days of receiving your application; it summarizes the loan’s terms and estimated costs. The Closing Disclosure must be received at least three business days before closing and states the final terms and costs. Compare the two carefully and ask your lender about any differences.

• CFPB: Loan Estimate explainer (opens in a new tab)

  A line-by-line explanation of the Loan Estimate form and what to check on it.

• CFPB: Closing Disclosure explainer (opens in a new tab)

  A line-by-line explanation of the Closing Disclosure and how to compare it with your Loan Estimate.

Rate locks

A rate lock is a lender’s commitment to hold an interest rate and its terms for a set period while your loan is completed. Ask how long the lock lasts, whether there is a cost, and what happens if closing is delayed. Get the lock in writing.

Compare lenders, and verify licenses

Request Loan Estimates for the same kind of loan from more than one lender, and compare them side by side. Before you apply, confirm that the mortgage company and loan officer are licensed using NMLS Consumer Access, the official free lookup.

• NMLS Consumer Access (opens in a new tab)

  The official free lookup for the licensing of mortgage companies and loan officers.

• Consumer Financial Protection Bureau: Buying a House (opens in a new tab)

  The CFPB’s step-by-step guide and tools for shopping for a mortgage and buying a home.